On January 1, 2020, Pinnacle Corporation exchanged $3,415,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet: Cash Accounts receivable Inventory Buildings (net) Licensing agreements Total assets $ 196,000 . 345,000 385,000 1,905,000 3,285,000 $ 6,116,000 Accounts payable $ 381,000 Long-term debt 2,945,000 Common stock 1,500,000 Retained earnings 1,290,000 Total liabilities and equity $ 6,116,000 Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildingo (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 3, 415,000 2,790,000 $ 625,000 324,000 (113,000) 211,000 414,000 At the acquisition date, Strata's buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. On December 31, 2021, Strata's accounts payable included an $86,200 current liability owed to Pinnacle. Strata Corporation continues its separate legal existence as a wholly owned subsidiary of Pinnacle with independent accounting records. Pinnacle employs the initial value method in its internal accounting for its investment in Strata The separate financial statements for the two companies for the year ending December 31, 2021, follow. Credit balances are indicated by parentheses. Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income Retained earnings 1/1/21 Net income Dividends declared Retained Earnings 12/31/21 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/21 Total Liabilities and Owner's equity Pinnacle Strata $ (7,507,000) $ (3,500,000) 4,950,000 2,020,000 265,000 232,000 642,000 351,000 657,000 (60,000) $ (1,710,000) $ (240,000) $ (5,150,000) $ (1,603,800) (1,710,000) (240,000) 500,000 60,000 $ (6,360,000) $ (1,783,800) $ 417,500 $ 415,800 1,440,000 250,000 1,365,000 1,555,000 3,415,000 5,850,000 2,162,000 1,971,000 382,500 $ 12,870,000 $ 6,353,800 $ (410,000) (955,000) (3,100,000) (2,115,000) (3,000,000) (1,500,000) (6,360,000) (1,783, 800) $(12,870,000) $ 16,353,800) a. Prepare a worksheet to consolidate the financial information for these two companies. b. Compute the following amounts that would appear on Pinnacle's 2021 separate (nonconsolidated) finadcial records if Pinnacle's investment accounting was based on the equity method. Subsidiary income. Retained earnings, 1/1/21. Investment in Strata . c. What effect does the parent's internal investment accounting method have on its consolidated financial statements? Complete this question by entering your answers in the tabs below. Required A Required B Required Prepare a worksheet to consolidate the financial information for these two companies. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and credit columns should be entered as positive. Input all amounts as positive values.) Show less PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2021 Consolidation Entries Accounts Pinnacle Strata Debit Credit Consolidated Totals Sales $ (7,507.000) $ (3,500,000) $ 11,007,000! 4,950,000 265,000 642,000 6,970,000 497,000 Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income 2,020,000 232,000 351,000 657,000 60,000 (60,000) $ (1,710,000) $ (240,000) Retained earnings 1/1/21 Not income Dividends declared Retained earnings 12/31/21 (5,150,000) (1,603,800) (1,710,000) (240,000) 500,000 60,000 $ (6,360,000) $ (1,783,800) Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets 417,500 $ 1,440,000 1,365,000 3,415,000 5,850,000 415,800 250,000 1,555,000 2,162,000 1,971,000 382,500 $ 12,870,000 $ 6,353,800 Accounts payable Long-term debt (410,000) (3,100,000) (955,000) (2,115,000) (3,000,000) Common stock - Strata (1,500,000) Retained earnings 12/31/21 (6,360,000) (1,783,800) Total Liabilities and Owner's Equity S(12,870,000) $ (6,353,800) $ 60,000 $ Required B >
